@agsax2022 wrote:
@xmasbaby0 - I appreciate your quick reply and discussion. I think my error is assuming that "custodial" and "noncustodial" terms apply to unmarried parents living together based on their AGIs. If the child lived with both parents all year, this is not what is meant by a tie-breaker test.
Correct. Unmarried parents living together can't use form 8332 and can't split the dependent benefits. Either parent can claim the child regardless of income. The AGI tiebreaker only comes into play if the parents can't agree on who should claim the child. (It is allowable for the parent with the lower income to claim the child if both parents agree.)
In most cases, the maximum tax benefit will be for the parent with the higher income to claim the child since that will also allow them to file as head of household. However, this is not always the case, depending on EIC and other factors. And if there is more than one child, the maximum benefit might involve one parent claiming them all, or each parent claiming at least one of the children. The only way to determine the maximum tax benefit is to test different combinations.
The one important thing to note when using Turbotax is that, if you are the parent who is not claiming the child, you should not even list them on your return; and the parent who will claim the child must answer "no" to the question, "do you have a custody agreement with the other parent?" (This only applies to a court order between parents who live apart.) The interview questions are designed for parents who live apart, and can be confusing for parents who live together and share custody, and can lead to incorrect results.
